An insurance-linked security can be issued by a property-casualty insurer through:

Question

Options

• Aanticipated salvage
• Bsurplus withdrawal
• Ctabular discount
• Dprotected cell

• A
  3% (1)
• B
  14% (4)
• C
  10% (3)
• D
  72% (21)

Explanation

A protected cell is a legally segregated compartment within a special purpose vehicle (SPV) that allows a property-casualty insurer to issue insurance-linked securities (such as catastrophe bonds) while ring-fencing those assets and liabilities from the rest of the company - giving capital market investors clean, isolated exposure to specific insurance risks.

Why the distractors are wrong:

• A. Anticipated salvage is the expected future recovery from damaged property after a claim is paid - a loss reserving concept, not a capital markets structure.
• B. Surplus withdrawal refers to extracting equity/surplus from an insurer's balance sheet, which has nothing to do with issuing securities.
• C. Tabular discount is an actuarial technique for discounting loss reserves using standard industry tables - again, a reserving method, not a security-issuance mechanism.

Memory tip: Think of a cell like a sealed bubble - it protects both the insurer and investors by isolating the risk transfer. Whenever you see "insurance-linked security" + "issued by an insurer," the answer is the structure that creates that isolation: the protected cell.

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